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Professional Conduct > Money Laundering > Flashcards

Money Laundering Flashcards

1
Q

What is money laundering?

A

Financial transactions where proceds from serious crime are ‘cleaned’ so that its source is harder/impossible to trace

Serious crime = drug trafficking, terrorism, tax evasion, theft etc.

Can also involve simply benefitting/receiving from small proceeds of relatively minor crime

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2
Q

What are the 4 elements to money laundering?

A
  1. Criminal source of the funds is disguised
  2. Form of funds will be converted (paper bills > money in a bank account)
  3. Trail by which the conversion occurs will be disguised
  4. Launderer will retain control of funds (directly or indirectly)
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3
Q

How can solicitors/firms be exposed to money laundering?

A

They can legitimate transactions, have access to financial markets and advise on property and business deals

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4
Q

Who is responsible for compliance with the Proceeds of Crime Act 2002 and the Money Laundering Regulations 2017?

The 2 key pieces of money laundering legislation

A

The COLP, COFA and managers (partners) - but individual solicitors will also be concerned not to commit a criminal offence under PoCA or MLR

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5
Q

What must each law firm appoint re money laundering?

A

Money Laundering Reporting Officer (MLRO) aka ‘nominated officer’

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6
Q

What reporting obligations does a firm have?

A

All firms must have policies and procedures obliging anyone in law firm who knows/suspects money laundering to comply with reporting obligations set out in PoCA

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7
Q

What is an AML Risk Assessment document?

A

Anti money laundering - written record of steps a firm/business has taken to identify and assess risks of money laundering

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8
Q

How might a solicitor be inadvertently used as part of a money laundering process?

A
  • Client depositing cash in firm’s client account solely for onward transmission to TP
  • Client acquires property, invests in business or buys an asset using cash which is proceeds of a crime
  • Setting up legal/transaction structures intended to be used for money laundering e.g. complex trust structures
  • Client uses firm’s client account to mix clean and dirty cash to disguise audit trail
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9
Q

What are some warning signs of money laundering?

A
  • Instructions outside your firm’s expertise (but client claims to be expert)
  • Unusual retainers e.g. easily settled dispute suggests sham litigation
  • Use of client accounts e.g. deposits funds into account but ends transaction for no apparent reason
  • Setting up trust if its purpose is to launder criminal property
  • Property purchase using large payments from private funds where client has low income
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10
Q

What suspicious fact patterns can suggest money laundering?

A
  • Seller and buyer with similar names who give same address/are both outside UK jurisdiction
  • ‘Mistakes’ re overpayment to client account
  • Monies arriving from TP who is not your client
  • Client asks to send monies to unknown TP
  • Documents show seller and buyer w similar signatures
  • Clients attempting to pay large funds in cash
  • Offshore vehicles being made parties to a deal
  • Money coming from or being requested to sent to offshore tax havens
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11
Q

What are the high risk jurisdictions?

A

N Korea, Iran, Myanmar, Afghanistan, Cayman Islands, Congo, Haiti, Syria, Yemen, Philippines

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12
Q

What are the differences between direct involvement offences and non-direct involvement offences?

A
  • Direct involvement offences - apply to everyone, lawyers and otherwise (offences being doing the money laundering itself)
  • Indirect involvement offences - apply to people working in the ‘regulated sector’ (offences being not disclosing and tipping off)
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13
Q

What is the ‘regulated sector’ re non-direct involvement offences?

A

People ‘participating in financial and real property transactions’ concerning:

  • Buying/seing real property or business entities
  • Managing of client money, securities or other assets
  • Opening or management of bank, savings or securities accounts
  • Creating operating or managing companies
  • Creating, operating or managing trusts, companies or similar

Inc insurance companies, investment services, accountancy services, inso

Inc insurance companies, investment services, accountancy services, insolvency practicioners

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14
Q

What are the 3 direct involvement offences?

A
  1. Concealing/disguising/converting/transferring criminal property or removing criminal property from the UK (s327)
  2. Entering into or becoming concerned in arrangement which you know/suspect facilitates acquisition/retention/use/control of criminal property (s328)
  3. Acquiring/using/possessing criminal property (s329)

Common for more than one to be engaged at once

A client asks you to deposit £10,000 cash into firm’s client account without link to particular transaction. You suspect the £10,000 was from the proceeds of crime.
Risk of committing offence under s328 (concerned in arrangement facilitates retention of criminal property) and s329 (possessing criminal property)
You then transfer the £10,000 to another bank account, nominated by your client.
Risk of committing offence under S327 (transferring criminal property)

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15
Q

What is the defence to a direct involvement offence?

A

Authorised disclosure (s338) to a nominated officer (who is nominated to receive disclosures)

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16
Q

What is the golden rule re disclosure to a nominated officer?

A

If you suspect a person you are dealing with is planning to transfer crimina property to firm/employer’s bank account, you must report concern to MLRO/other nominated official (and do not do the thing)

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17
Q

Should an authorised disclosure be made before, during or after solicitor carries out prohibited act?

A

Can be before, during or after depending on act…
* Before prohibited act e.g. before accepting money
* During and when he began to do act if he did not know/suspect property constituted or represented a person’s benefit from criminal conduct and disclosure made on own initiative as soon as practicable e.g. called into urgent meeting with client and reports arrival of cheque of proceeds of crime when she gets back to office
* After prohibiting act if good reason and made on own initiative as soon as practicable e.g. threatened with physical harm unless they make deposit

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18
Q

What is a defence to not making a s338 disclosure?

A

If you have a reasonable excuse for not doing so

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19
Q

What if the criminal conduct which makes the property in question criminal took place outside the UK and was not unlawful in the state in which it took place?

A

No offence is committed

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20
Q

What are the 2 non-direct involvement offences?

I.e. regulated sector

A
  1. Failure to disclose (s330)
  2. Tipping off (s333A)
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21
Q

When will failure to disclose be a non-direct involvement offence?

A

If:

  1. You know/suspect someone is laundering proceeds of any criminal conduct;
  2. You receive information in course of business in regulated sector; and
  3. You can identify person who is laundering proceeds of criminal conduct or whereabouts of laundered property or that information (2) will/may assist in identifying someone (1)
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22
Q

What must a disclosure contain (to avoid a failure to disclose offence)?

A
  • Identity of person who you know/suspect is laundering proceeds of criminal conduct; and
  • Whereabouts of laundered property if you know it; and
  • The information on which your knowledge/suspicion is based
23
Q

When can further action - authorisation/undertaking of any prohibited act - be taken once disclosure has been made to the NCA?

3 different circumstances

A

If

  1. Authorised to do so by the NCA; or
  2. Seven working days have passed from disclosure to NCA during which time NCA has not refused authority to proceed; or
  3. NCA has refused consent during notice period and moratorium period (31 days from when firm received notice that consent was refused) has expired
24
Q

How do you commit the non-direct involvement offence of tipping off?

A

You know/suspect an internal or external report has been made and you tell your client or a TP (possibly prejudicing investigation)

25
Q

®

What happens if type of legal work does not fall within definition of regulated sector e.g. advising on litigation matter?

A

Most firms will have a policy requiring staff to report suspicion to MLRO and no tipping off regardless of whether work falls within definition or not

26
Q

What are the different objectives of the PoCA and MLR?

A
  • PoCA = anticipates reporting of suspicious transactions (where someone benefits from proceeds of crime)
  • MLR = requires organisations to get themselves in position to identify and report potential money laundering; designed to ensure organisations establish procedures to forestall and prevent operations relating to money laundering
27
Q

Will MLR apply to all types of legal work?

A

Many but not all e.g. employment or litigation cases - but most firms will take steps required by MLR regardless of whether or not the work they are undertaking for particular client is caught

28
Q

When must CDD measures be taken?

4 different occasions

A

When a person to whom MLR applies…

  1. Establishing a business relationship (at outset of matter); or
  2. Carrying out occasional transaction (a one-off transaction that exceeds 1000 EUR); or
  3. Suspects money laundering or terrorist financing
  4. Has doubts about veracity/adequacy of identification documents/info previously provided
29
Q

What does standard CDD require?

A

Identify a customer and verify identity based on documents/data received from reliable and independent source (e.g. passport, e-verification, information from other regulated persons)

30
Q

What should be identified when standard CDD is carried out on a company/trust?

A
  • Name, company number, address of registered office, law to which it is subject etc.
  • The beneficial owner/people with significant control (PSCs) who ‘controls entity’; has more than 25% share/voting rights or has power to appoint or remove a majority of board of directors
  • The ownership/control structures of person, trust or arrangement must also be understood
31
Q

When identifying PSCs, can you rely on the PSC register?

A

Cannot rely on PSC register only but makes identifying beneficial owners easier

32
Q

Will CDD only take place at the start of a relationship?

A

No - there should be ongoing monitoring of business relationship inc:

  • Scrutiny of transactions undertaken throughout course of relationship
  • Undertaking reviews of existing records and keeping documents/information obtained for CDD purposes up to date
33
Q

What is enhanced CDD and will it be used instead of standard CDD?

A
  • The type of CDD conducted where there is a higher risk of money laundering
  • Will be used in addition to standard CDD measures
34
Q

In what circumstances should enhanced CDD be carried out?

A
  • Where there is a high risk of money laundering/terrorist financing
  • Any transaction/business relationship with person established in high-risk third country
  • In relation to correspondence relationships
  • If a (potential) customer is a (family member/close associate of) PEP (politically exposed person - higher risk of bribery or corruption)
  • Where customer has provided false/stolen identification documentation
  • Where transaction is complex, unusually large or unusual patterns

Even if it is an established client

35
Q

What should enhanced CDD include as far as reasonably possible?

A
  • Background and purpose of transaction
  • Increasing degree/nature of monitoring of relevant relationships
  • Getting additional, independent and reliable sources to verify information
  • Taking additional measures to understand background of customer’s financial situation
36
Q

What must enhanced CDD include if it is applied to party to transaction being established in high-risk third country?

A
  • Additional information on client, intended nature of business relationship, source of funds and wealth of client, reason for transactions
  • Obtaining approval of senior management of practice for establishing or continuing business relationship; and
  • Conducting enhanced monitoring of business relationship by increasing number and timing of controls applied and selecting patterns of transactions needing further examination
37
Q

When may an organisation conduct simplified CDD?

A

Where a business relationship/transaction presents a low risk of money laundering

38
Q

What is the difference between simplified and standard regulation?

A

The same regulations must be complied with, but extent, timing or type of CDD measures are adjusted to reflect the low risk of money laundering

39
Q

What customer factors would imply a low risk of money laundering?

A
  • Public administration
  • Publicly owned enterprise
  • Financial or credit institution
  • Company listed on regulated market (LSE)
  • Individual resident in geographical area of low risk (with effective systems to counter ML and TF)
40
Q

What product factors would imply a low risk of money laundering?

A

Where product or service is…

  • A life insurance policy with a low premium
  • A pension scheme which meets certain prescribed conditions
  • A child trust fund
  • A junior ISA
41
Q

Must verification of identity of customer take place before establishment of relationship/carrying out transaction?

A

Can be completed during provided delay is necessary to not interrupt normal conduct of business and there is little risk of money laundering/terrorist financing

42
Q

If a client moves to another solicitor, can the new solicitor refer on the CDD undertaken by the old solicitor?

A

Yes, if they obtain all information needed to satisfy MLR and enter into agreement with old solicitor which:
1. enables the new one to obtain copies of identification/verification data immediately on request (within two working days)
2. requires old solicitor to retain copies for specified period

43
Q

What classes of people may be relied on if they conduct CDD?

A

Credit or financial institution authorised under FSMA, auditors, insolvency practicioners, external accountants and tax advisors, independent legal professionals (solicitors!)

44
Q

Will relying on another person’s CDD absolve you of liability for client not being properly checked for ML purposes?

A

No! In practice most law firms prefer to undertake own CDD

45
Q

What evidence can be used to verify the identity of natural persons (individuals)?

A
  • Current signed passport
  • Current signed photocard driving licence
  • Assurances from persons within regulated sector who have dealt with person fo some time

It is good practice to have either:
one ‘government document’ which verifies either the name and address or name and date of birth; OR
a ‘government document’ which verifies the client’s full name and another supporting document which verifies the name and either their address or date of birth.

46
Q

What is often preferred over traditional methods (previous card) for verifying UK-based clients’ identities?

A

Reputable electronic data service providers - electoral roll, Companies House, Credit Reference agencies, Passport Office, DVLA

47
Q

What evidence can be used to verify the identity of UK partnerships?

A
  • Individuals running the partnership should be identified the same way as private individuals
  • If the partnership is well-known reputable organisation with long history and substantial public info, should be sufficient to get: name, trading address, registered address (if any) and name of business
48
Q

Will all partnerships be verified as partnerships?

A

Larger partnerships and unincorporated businesses should be treated like companies

49
Q

How is the identity of a UK company verified?

Identity made up of constitution, business and legal ownership structure

A

Must obtain its name, company number and address of registered office (and if different, principal place of business)

50
Q

How is the identity of a UK listed company verified?

What type of CDD is required?

A

Only need to carry out simplified CDD
* Copy of dated page of website of relevant stock exchange showing listing
* Photocopy of listing in a reputable daily newspaper
* Information from a reputable electronic verification service provider/online registry

51
Q

What are the verification sources of a listed UK company?

A
  • Search of relevant company registry and
  • A copy of company’s certificate of incorporation
52
Q

Is AIM registered to be a regulated market in the UK?

A

No - the UK’s regulated market is the LSE

53
Q

How is the identity of a UK private and unlisted company verified?

A
  • Must obtain and verify the name, company number, address of registered office/principal place of business
  • Must determine and verify the law to which company is subject, its constitution and the full names of board of directors and senior persons responsible for its operations
54
Q

What are the verification sources for a UK private and unlisted company?

A
  • Certificate of incorporation
  • Filed audited accounts
  • Details from relevant company registry confirming company’s details and directors (inc addresses)
  • Information from reputable electronic service provider

Professional Conduct (8 decks)

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